Dow Volume

You hear a lot about the Dow Theory as you travel through your business career. Dow has never actually used the phrase. It came later that analysts have begun to use the term.

I should come back here and say that slightly in 1884 Dow published his first stock market average of 11 stocks. From the original 11 stocks there were some changes and rearrangements of the average until finally in 1928 he settled on 30 actions now that the industry average and that's where we get the concept of "Dow Jones Industrial Average.

The current theory is quite simple to explain and sensible if you take the time to think. I'll simplify a bit, because we have not addressed some of the terms yet.

1. The market discounts everything. The price you see is the true market value. If you follow a particular action and it is trading at $ 10, so that is a fair value of this stock. It assumes that all known information about this stock has been taken into account by the market and is reflected in the price. If new information was introduced it changed the course of action, but it is still reflected in the price.

2. The market has three major trends. We begin to enter into some technical expressions here but just bear with me, as we explain all these terms as we progress. Dow interpretation of a trend is that each rally high, being higher than the previous rally high and low of each rally will be higher than the previous rally low.

The trend over three where a primary, secondary and minor trends. Now this is important because later we are discussing this, it will play a major role in our analysis.

The main trend is the main driver of the trend and is like a river flowing in a particular direction. The secondary trend is as dependent on the main trend. It may depart for a while, but eventually it will come back online with the main river. The trend is minor as a small creek, which runs this way and that, but is headed in the general direction of the stream.

The main trend may take years to come to an end and develops over time. The secondary trend can last from several weeks to several months duration and may be a minor trend in the opposite direction of the primary trend. minor trends, such as daily trends last a few days or more and are of little importance.

3. Besides the three types of trends, Dow then to further qualify the trend by saying that the trend has three phases. An accumulation stage, the stage of public participation and finally the distribution stage.

4. The original Dow average was composed of shares from different sectors of the next part of the Dow Theory is that the average of the different sectors must confirm each other.

5. Dow also examined the effect of volume on a trend. He said that the volume should increase in the same direction of the trend.

6. The last major part of the theory is the trend should be regarded as still in force until there is a clear indication that management has indeed changed.

My interpretation of the Dow theory above is very brief because it is to dive deeply into any particular topic. It is not necessary for what I am trying to achieve and that is to give you a general idea of how markets work and a way to trade.

The main point I want to remove yourself from the Dow Theory is that there are three types of trends, a trend primary, secondary and minor changes in the trend. We can use in our approach.